Celebrating Tax Freedom

April 11, 2005

Millions of Americans are no doubt scrambling to submit their tax returns as the annual April 15 tax filing deadline looms. But how many of them are aware that it won't be until two days after the deadline that they'll have worked enough hours to pay off their yearly tax bill?

Tax Freedom Day, the date when average Americans have earned enough money to pay their 2005 federal, state and local taxes, falls on April 17 this year, as calculated annually by the Tax Foundation, a nonprofit tax policy research organization. This year's Tax Freedom Day arrives two days later than in 2004, which, due to recent tax cuts, was the earliest arrival in 37 years.

The date had been arriving earlier each year since 2000, when the economy bubble that boosted tax collections to higher levels had pushed it all the way to May 3. Economists with the Tax Foundation said the later arrival this year indicates the tax burden has resumed its more typical upward movement after falling the past two years.

Overall, 29.1 percent of Americans' 2005 incomes will go to taxes, which amounts to working from Jan. 1 to April 17 for the government, according to the report. That's up from 28.6 percent last year.

For some Americans, the concept of working 3½ months of the year -- spending nearly a third of their incomes -- just for taxes is a little tough to swallow.

Nelson Jacob, 63, a semiretired university professor living in College Station, Texas, said he wonders whether U.S. tax money is misspent, pointing to the soaring national debt as evidence.

"As a citizen you hear politicians use taxes as a political talking point, and they play with ideas about tax relief as a political domino. But it doesn't seem like they're really concerned with the basic needs of the American people," he said.

Jacob and his wife plan to move to Brazil over the summer, where he expects to live a more managable lifestyle on the money from his federal civil service retirement income and an IRA.

"For your basic living expenses, it's much more affordable," he said.

Tax Spending Exceeds Housing, Food

Breaking it down, the Tax Foundation's report estimates Americans will work 70 days to afford federal taxes and an additional 37 days for state and local taxes. We'll work 65 days to pay for housing and household expenses, 52 days for health and medical funding, 31 days for food, 22 days for recreation and 13 days to pay for clothing and accessories. In a telling note, Americans need only spend two days at work to achieve our average yearly savings.

It's doubtful that many Americans have April 17 circled on their calendars, and don't expect keg tapping and parties to ensue. After all, it's not exactly a holiday, and it's not like the next 8½ months will be tax-free. Most American workers pay local and federal taxes through their monthly paychecks, so the date itself has a somewhat mythical existence.

Obviously, in a country of citizens with hugely disparate incomes, the fact that the date is an average for all Americans signifies that the actual amount of work needed to finance taxes varies widely. But financial advisers point out that the Tax Freedom Day can be a symbolic reminder for personal investing and budgeting.